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Buyers have shown considerable interest in a number of stocks in industries that have been considered dull and lacking growth prospects, such as semiconductor technology, diversified computer systems, tobacco and paper products. When considering whether to invest in any stock, it is important to understand what is driving the stock price to increased buying interest. Is it triggered by strong company fundamentals and solid earnings growth or market rumor and sentiment? In this article I will review five stocks that investors are buying like crazy, with a view to determining whether the fundamentals indicate they are worthwhile investments.

International Business Machines (IBM)

IBM has a market cap of $211.69 billion with a price to earnings ratio of 14.39. For a 52 week period its trading range has been $138.40 to $190.53. Its last trading price was around $180. It reported second quarter earnings 2011 of $26.67 billion, an increase from first quarter earnings of $24.61 billion. Second quarter net income was $3.66 billion, an increase from first quarter net income of $2.86 billion. The company has quarterly revenue growth of 12.40%, a return on equity of 69.26%, and pays a dividend with a yield of 1.70%.

One of IBM’s closest competitors is Accenture Plc (ACN). Accenture last traded at $57.09 and has a market cap of $36.96 billion. It has a price to earnings ratio of 16.81, quarterly revenue growth of 23.00% and a return on equity of 66.97%. It pays a dividend with a yield of 2.30%. Based on these performance indicators, both companies are performing strongly and equally.

IBM’s cash position has improved, its second quarter 2011 balance sheet showed $11.71 billion in cash, a decrease from $12.76 billion in the first quarter. It has quarterly revenue growth of 12.40%, versus an industry average of 8.10%, and a return on equity of 69.26%, versus an industry average of 36.40%, indicating that IBM is performing ahead of many of its peers.

The US Federal Reserve recently decided to keep interest rates extremely low for another two years, saying “it expected the economy to remain weak for that period.” Thus, indicating that the earnings outlook for companies generating revenue in the US remains poor in the short term, due to the weak economy and high unemployment. As a result many of IBMs corporate clients are engaging in cost cutting measures that may lead to reduced earnings growth for IBM. However, IBM has a built a strong international franchise and diversified its operations across a number of countries, which will enhance any opportunity for earnings growth.

Even though the economic outlook is subdued, when IBM’s strong net income growth combined with solid performance indicators are considered, the buying interest in the company is justified. Accordingly I rate IBM as a buy.

Temple-Inland Inc (TIN)

Temple-Inland Inc has a market cap of $3.43 billion and a price to earnings ratio of 18.72. For a 52 week period its trading range has been $19.03 to $31.65. Its last trading price was around $32. The company reported second quarter earnings for 2011 as $1.02 billion, an increase from first quarter earnings of $995 million. Second quarter net income was $19 million, an increase from first quarter net income of $16 million. It has quarterly revenue growth of 4.10%, a return on equity of 19.12%, and pays a dividend with a yield of 1.70%.

One of Temple-Inland’s closest competitors is International Paper Company (IP). International Paper last traded at $25.59 and has a market cap of $11.19 billion. It has quarterly revenue growth of 8.60%, a return on equity of 17.94% and pays a dividend with yield of 4.10%. Both companies are performing strongly, but International Paper pays a far more attractive dividend.

Temple-Inland’s cash position has improved, its second quarter 2011 balance sheet showed $43 million in cash, an increase from $24 million in the first quarter. Its quarterly earnings growth of 4.10% is less than the industry average of 9.10%, while its return on equity of 19.12%, is greater than an industry average of 16.80%. Based on these performance indicators, Temple-Inland is underperforming some of its industry peers, although it return on equity is better than most, showing strong management.

The earnings outlook for the paper products industry is subdued, primarily due to the uncertain economic conditions and poor consumer sentiment. However, the weak US dollar bodes well for US manufacturers like Temple-Inland, as it makes their products more competitive in overseas markets.

Despite the depressed earnings outlook Temple-Inlands recent increase in net income combined with a stronger cash position shows the company is well positioned to capitalize on any future growth opportunities. This explains the increased buying interest and accordingly I rate Temple-Inland as a buy.

Reynolds American Inc (RAI)

Reynolds American Inc. has a market cap of $22.83 billion with a price to earnings ratio of 17.03. For a 52 week period its trading range has been $30.94 to $39.94. Its last trading price was around $40.

The company reported second quarter 2011 earnings of $2.27 billion, an increase from first quarter earnings of $1.99 billion. Second quarter net income was $304 million, a decrease from first quarter net income of $353 million. It is achieving quarterly revenue growth of 1.00%, a return on equity of 20.57%, and pays a dividend with a yield of 5.40%.

One of Reynolds American’s closest competitors is Lorillard Inc (LO). Lorillard last traded at $114.34, has a market cap of $15.83 billion and a price to earnings ratio of 15.64. It has quarterly revenue growth of 11.70% and doesn’t currently have a return on equity. It pays a dividend with a yield of 4.70%. Based on these performance indicators, it is outperforming Reynolds American, although Reynolds American pays a more attractive dividend.

Reynolds American’s cash position has substantially declined, its second quarter 2011 balance sheet showed $1.34 billion in cash, a decrease from $2.99 billion in the first quarter. It has quarterly earnings growth of 11.70% versus an industry average of 6.00%, and a return on equity of 57.10%, versus an industry average of 15.70%. Based on these performance indicators Reynolds American is outperforming many of its industry peers.

On first impressions the earnings outlook for the tobacco industry looks bleak with increased regulatory pressure, a depressed economy and unemployment in excess of 7%, which is forecast by Goldman Sachs, to remain above that level until 2013. However, Fitch believes tobacco companies will manage the current regulatory pressures and be able to increase earnings through increased pricing and cost cutting.

On this basis Reynolds Americans earnings outlook combined with increasing revenues and an attractive dividend explains the strong buying interest. Accordingly I rate the Reynolds American as a buy.

Altria Group Inc (MO)

Altria Group Inc has a market cap of $57.99 billion. For a 52 week period its trading range has been $23.20 to $28.14. Its last trading price was $28. The company reported second quarter earnings 2011 as $1.18 billion, an increase from first quarter earnings of $1.13 billion. Second quarter net income was $279.40 million, an increase from first quarter net income of $255.60 million. Altria has a quarterly revenue growth of 38.80%, a return on equity of 18.76%, and pays a 6% dividend.

One of Altria’s closest competitors is Reynolds American Inc (RAI). Reynolds American last traded at $39.16. It has a market cap of $22.83 billion with a price to earnings ratio of 17.03. It has quarterly revenue growth of 1.00% and a return on equity of 20.57%. Reynolds American pays a dividend with a yield of 5.40%. Based on these performance indicators Reynolds American has better management and a high yielding dividend. However, Altria has higher growth potential.

Altria’s cash position has declined, its second quarter 2011 balance sheet showed $2.06 billion in cash, a decrease from $3.43 billion in the first quarter. Altria has a quarterly revenue growth of 38.80%, well above the industry average of 6.00%, and a return on equity of 18.76%, versus an industry average of 57.10%. This indicates that the company is outperforming many of its peers in revenue growth but is underperforming on return on equity.

The current outlook for the cigarette industry is difficult to predict, with increased regulatory pressures and a subdued economic climate indicating poor earnings growth. However, it is predicted that tobacco companies will be able to maintain earnings growth through price increases and cost cutting. When this is combined with Altria’s strong performance indicators and increased net profit, I understand the increased buying activity. On this basis I rate the company as a buy.

Intel Corporation (INTC)

Intel Corporation has a market cap of $124.76 billion with a price to earnings ratio of 10.90. For a 52 week period its trading range has been $19.16 to $24.50. Its last trading price was $24. The company reported second quarter earnings 2011 as $13.03 billion, an increase from first quarter earnings of $12.85 billion. Second quarter net income was $2.95 billion, a decrease from first quarter net income of $3.16 billion. The company is achieving quarterly revenue growth of 21.10%, a return on equity of 25.91%, and pays a dividend with a yield of 3.60%.

One of Intel’s closest competitors is Texas Instruments Inc (TXN). Texas Instruments last traded at $29.88. It has a market cap of $34.50 billion with a price to earnings ratio of 11.51. It has quarterly revenue growth of -1.10%, a return on equity of 30.39%, and pays a dividend with a yield of 2.20%. Based on these performance indicators Intel is outperforming Texas instruments.

Intel’s cash position has improved, its second quarter 2011 balance sheet showed $4.64 billion in cash, an increase from $4.19 billion in the first quarter. Intel’s quarterly earnings growth of 21.10%, versus the industry average of 34.80%, and a return on equity of 25.91%, versus an industry average of 23.50% indicates that the company is performing on par with many of its peers.

The earnings outlook for the semiconductor industry is currently poor. Morris Chang, Chairman of TSMC, recently stated that; “the semiconductor industry is going to face a slow recovery from its present, third quarter weakness, due to the depressed global economic outlook and declining consumer demand resulting from high unemployment and low consumer sentiment.” However, the weaker US dollar will make US exports cheaper and more attractive to overseas buyers, which bodes well for US based manufactures such as Intel.

Despite the gloomy outlook for the semi-conductor industry, I understand the buying interest in Intel, due to its attractive dividend yield, solid performance indicators and increased cash holdings. Accordingly I rate Intel as a buy.

Source: 5 'Dull' Sector Buys